Brexit: A no-deal scenario is still a real risk

With Theresa May facing resistance both domestically and abroad, companies are forced to still consider a no-deal scenario.

Draft Withdrawal Agreement approved, initially

Late on November 14, 2018, Theresa May's cabinet approved the draft Withdrawal Agreement, which had been approved by the UK and EU on technical level.

The draft Withdrawal Agreement covered such issues as:

"Citizens' rights", Part Two of the draft (Article 9 ff.), which sets out commitments regarding citizens' rights after Brexit, e.g. workers and students will be able to continue to live and work where they currently reside.

"Separation Provisions", Part Three of the draft (Article 40 ff.), which sets out provisions for winding down current arrangements between the EU and UK, for example regarding goods, which in so far as they are already placed on the market before the end of the transition period can continue to their final destination. The provisions also cover matters such as intellectual property rights, police and judicial cooperation in criminal matters and data protection.

"Transition", Part Four of the draft (Article 126 ff.), which sets out a transition period from March 30, 2019, until December 31, 2020. Unless otherwise stated in the draft, EU law will continue to be applicable to the UK during the period, however in this time the UK Parliament is not considered to be a national parliament of an EU member state and will therefore not be able to submit proposals, initiatives or requests to EU institutions. The draft sets out that the transition period can be extended if the parties agree hereto, however it does not specify for how long it can be extended.

"Financial Provisions", Part Five of the draft (Article 133 ff.), which sets out the EU and UK's financial commitments to one another after Brexit. The commitments range from the UK's continued participation in the 2019 and 2020 EU budgets to the on-going contribution to already outstanding commitments to the EU. These financial commitments have previously been estimated at roughly 39 billion GBP and referred to as the 'divorce bill'.

The agreement also implements a "backstop", which is a type of safety net that guarantees that no hard boarder between Ireland (an EU27 member) and the UK's Northern Ireland will be established.

The backstop takes its form as a temporary customs union, which not only includes Northern Ireland, but the whole of the UK. However, the UK cannot unilaterally terminate the customs union, as this can only be decided jointly by the EU and UK. The lack of unilateral control on the part of the UK has lately lead to further opposition from both sides and has resulted in the resignation of several of Theresa May's ministers.

What's next?

The next step is for the remaining 27 member states of the EU, together the European Council, to thoroughly analyse the draft and - if they are in agreement - meet on November 25, 2018, and approve the agreement. To this end the Spanish Prime Minister Pedro Sánchez has already voiced that Spain will reject the deal if is not made clear that Spain has a right to discuss the status of the Gibraltar peninsula bilaterally with the UK.

If the European Council should approve the agreement, the UK Parliament must vote on the deal via the so-called 'meaningful vote'. However, the current opposition from members of the UK Parliament has led to further doubt regarding whether May will be able to get the deal passed through UK Parliament.

The coming days and weeks will likely be decisive of whether the draft Brexit-deal is approved as Theresa May is already hard pressed for time. If parliamentary or council negotiations fail, there is a danger that the deal will not be able to be ratified in the EU and UK before 29 March 2019. Therefore, even though the draft Brexit-deal has been approved by Theresa May's cabinet, a no-deal scenario is still a real risk.

What should companies do in the mean time?

We continue to recommend companies to stay up to date on the latest Brexit-developments and to continue to proactively plan for Brexit at the end of the (possible) transition period (December 31, 2020). Based on the latest developments, we recommend that companies have a set of contingency measures in place to tackle the still possible no-deal scenario.

For further details regarding the consequences of a no-deal scenario, please see our previous article that can be found here.

If you have questions regarding devising a plan or to which risks your company is exposed, we are happy to elaborate further.

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